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Tax Case Prompts SCOTUS to Revisit Question of Whether States Can Sue Each Other

By:

Chris Gaetano

Published Date:

Dec 7, 2015

A long-running legal battle between a Nevada-based inventor and the state of California over millions of dollars of alleged back taxes has, for the second time, made its way to the Supreme Court, which agreed to revisit the question of whether or not states are immune to lawsuits against each other, according to the Las Vegas Review Journal.

The case, Franchise Tax Board of California vs. Hyatt, involves a man who made millions of dollars inventing a new type of processor. Shortly after licensing the chip in the early 90s, he moved from California to Nevada, which does not have personal income tax. Despite the move, California determined he still owed about $10 million in income tax for the time he was a resident there, a sum that has since grown significantly due to interest and penalties. Hyatt, in turn, sued California in Nevada state court, saying that the audit the state performed was overly aggressive, and included fraud, invasion of privacy and intentional affliction of emotional distress, said the Journal, for which he was seeking punitive damages.

California, however, argued that it should be immune to being sued in Nevada's courts, noting that Nevada itself has a law prohibiting punitive damages against the state, though the Supreme Court of Nevada said this doesn't apply to acts of intentional fraud, which Hyatt alleges happened.

While the matter eventually made its way to the Supreme Court in 2003, it declined to take the case, and sent it back to the state level, where Nevada sided with Hyatt and demanded California pay him almost $500 million (a sum that has since been reduced to $1.2 million due to many of the charges being voided by the Nevada Supreme Court). Still, California appealed the case, and it has once again made it to the highest court in the land, which this time agreed to hear arguments. At issue is whether the case that set the precedent of states being able to sue each other, Nevada vs. Hall, should be overturned due to changing circumstances. California says it should. If the court sides with the Golden State, then it would be significantly more difficult for states to bring other states into their courts.

The case is a sort of reversal of another one, where the city of San Francisco sued the Nevada for giving mentally ill homeless people a one-way bus ticket out of the state (Nevada settled for $400,000), according to the Journal.